What next for Greece? Leave the Eurozone currency behind?

The Greeks are in for a very rough ride.

Greek politicians have once again thought they were smarter than their negotiating partners across the table. They were certainly proven wrong. Whenever you are desperate for money, you have to live by their terms unless there are some extraordinary circumstances.??Greece's damage to its reputation among investors will only be exceeded by the humanitarian damage that the lowest income Greeks will suffer because of the ill-advised negotiation strategy that Tsipras and Varoufakis pursued. 

• Greece is part of Europe and will always be;
• Trust, Negotiation and Execution: It is clear that the creditors do not trust Tsipras and his government to execute on its promises, even more so than the previous governments. Tsipras and Varoufakis, in my humble opinion, made a serious blunder by not understanding their negotiating position vis-à-vis the troika. The Greeks voted overwhelmingly to say “NO” to austerity. Who wouldn’t agree with that? The Greeks, however, as every poll shows, want to stay in the Euro and Tsipras and Varoufakis knew that. The only way to play “chicken” with the Germans and rest of the troika was to actually be willing to leave the Euro. If they wanted to play Russian roulette, Tsipras and family should have fired up the printing presses with Drachmas to at least show everyone they are ready to bring down the house and live up to their threats. Most likely, they would have gotten a much better deal or at least been prepared to back up their idle threats.

 By pissing the troika off and basically trying to embarrass them at home politically, Tsipras and family backed the Germans into a corner. The German public doesn’t want to continue to pay for Greek corruption, tax evasion and pensions of people who haven’t worked. We all know, as Greeks, that a lot of people are receiving pension checks from the government who have NOT ever paid taxes. Even in Mimi’s case, how much tax did he ever pay on his family’s earnings? How much was ever reported? The cash economy in Greece led to their downfall here because the states that have the money (ie, the Germans) all pay their taxes and report their income properly.

The Germans just don’t trust the Greeks to execute on their promises of reform, for good reason unfortunately. The Greek Parliament and successive Greek governments have not implemented the changes that they previously agreed with the troika so by publicly and in negotiations taking such aggressive positions, Tsipras and Varoufakis were doomed because the other side of the table thought they were just too arrogant. Unfortunately, when you are raising money, confidence is a necessity but arrogance kills you and Tsipras and, especially, Varoufakis were exceedingly arrogant.

• Greece does not have to leave the EU, just the Euro, in my opinion.  
  1. Lack of Control for a central bank: Why didn’t England join the Euro?  The reason stemmed mainly from not wanting to give up its ability to directly affect its economy by making monetary changes such as lowering interest rates, increasing money supply, etc.  England did not want to “cow-tow” to any stronger economy in the Eurozone such as Germany.  The British were absolutely correct in this assessment.  
  2. Austerity will never allow an economy to grow: Wassef, you are exactly correct when you say austerity won’t bring growth.  It never has and never will.  Governments promote growth by doing two things:  
     1. Fiscally, they increase spending through deficit spending and
     2. Monetarily, they increase money supply by lowering interest rates for banks to borrow from the central bank and increase money supply.  In times of real crisis, like 2008-2011 or so, central banks buy troubled assets from banks, like Citibank, etc. as the Federal Reserve Bank did in the US to improve liquidity and avoid major bank failures and write downs on their balance sheets. They do this so that the banking system remains solvent.  Currently, Greek banks are insolvent and open only because the ECB provides liquidity credit facilities, otherwise they will run out of cash. If the Greeks had their own currency, they could at least print money to provide liquidity. Under the Euro, they do not have any control.
  3. Weaker Eurozone Members have no flexibility: Unfortunately, only the strongest members of the Euro have the ability to affect policy on a monetary side. Greece has no power whatsoever now or previously when Greece was a member in good standing. When other weak members of the Eurozone get into trouble, they too will have to acquiesce the powers that are strongest in the Eurozone for relief.
  4. Debt Restructuring: Everyone agrees (except the German public) that Greece’s debt must be rescheduled. IMF, France, Spain, Italy, US, UK,…… Tsipras and family could have done this with back room negotiations over the next several months if they had agreed several months ago with the terms of the 3rd They didn’t agree because they thought they could get everything at the same time, (better deal meaning less austerity, and debt restructuring). By not understanding their negotiation strength, they blew that one, too. Greece’s debt grew so quickly over the last 15 years because of some voodoo financial instruments that understated Greek debt. Who was behind it, Goldman Sachs, whose partners made millions in the fees from floating the voodoo bonds that didn’t show up on Greece’s balance sheet until 2009 when Prime Minister George Papandreou announced it to the public and its creditors. The Greek public didn’t have anything to do with it and have always thought their government was solvent because debt was manageable prior to this. What the public did have a hand in was on the revenue side by evading taxes and cheating the government any way they could, as they have always done.
  5. This doesn’t happen with US states because: The structure of the US, from a revenue side, is the opposite of the European Union. The US federal government has a majority of the tax revenues nationally and each individual state has a much smaller portion. Therefore, the debt that the states can take on is much smaller so these types of problems are avoided in the states to a great degree. The debt, however, is the big difference between the US and the EU. The US federal debt is over $17 Trillion and all the states combined is $3 Trillion. In the EU, the debt is held by the individual member states because that is where the income is derived through member states. (Member state taxes, i.e., German tax receipts go to pay German debt, Greek tax receipts go to pay Greek debt) Therefore, the member states, like Germany, have much more power under the Euro structure than any individual state has in the US. Also, the reason for Merkel and friends leading the EU part of the troika is because they moved all the debt from private banks to sovereign balance sheets so the banks would not take losses, and then charged high interest rates to the Greeks. This would just not happen in the US structure because the federal reserve in the US would buy state bonds outright and hold them forever if necessary. Or in the case of municipal governments, like Detroit, they merely declare bankruptcy. Unfortunately, the Germans and friends have local politics to deal with and the US fed does not.
  6. Leave the Euro?: The only way that Greece can have the flexibility that it needs in this case, in my opinion, is to get out of the Eurozone currency in an orderly manner but not the European Union. Leaving the EU would be a monumental mistake because of all the benefits of free trade and allowing labor movement to where the jobs are in Europe at the moment.  Leaving the Euro would mean major short-term problems like Argentina experienced 10 plus years ago, strict capital controls, loss of savings, bank failures, and unknown humanitarian issues. The banking system must at first be recapitalized so the banking system would not immediately collapse. However, the Greeks by leaving could put off debt repayment forever or at least until infinity (i.e., decades) because they would be declaring bankruptcy essentially. Greece should not pay back the debt. The institutions that originally lent Greece money and among other things convinced Greece to hold an Olympics which wasted billions, deserve to lose their investment because they knew Greece couldn't pay them back or at least they should have but kept their eyes closed to it. 

The Greek politicians owe it to their citizens to lead them through this mess. A major requirement though is for the Greek public to start declaring their income and paying their taxes because without revenue, the government won't be able to sell Greek drachma bonds to investors to finance the investment incentives and investments that must be made to create sustainable employment in the private sector. This is a long term effort and will come with significant costs. 

1. The Humanitarian cost?: The bankers got rich, the politicians and businesses made hugh profits milking the system and the common man is left having to pay for it. Even in the case of pensioners, successive Greek governments continued to grow a bloated government and kept paying for it with debt. The poor guy who took the government or government owned company job (and is now relying on only a pension check) is not to blame for having taken the job that paid him.  In Greece's case, the political favors of Greek politicians have resulted in over 50% of the workforce being government employees as recent as 12 years ago and today resulted in over 50% of the population who rely solely on government checks of some sort. Unfortunately, the hammer will now come down harder on the Greek economy and ultimately the Greeks at the bottom of the ladder. It won’t be long before humanitarian aid will be required, especially since Tsipras decided to have this fight in the middle of tourist season driving away tourists and income.
2. Who’s to blame?: Everyone in the chain is to blame. As I said in my previous email, 50 years of corrupt and incompetent politicians, Greeks not paying taxes and their government turning a blind eye because the politicians and their friends were some of the biggest violators, the EU and ECB for "restructuring" debt to line the pockets of the banks that knew damn well that they were investing in an inefficient and corrupt counterparty, Goldman Sachs for knowing the books were cooked and doing nothing except collected their fees and bonuses, KPMG and whatever other auditors that were used because they too knew the books were cooked and every bloody banker that lent money to the Greeks with their EYES SHUT.
3. Unfortunately, who are the people who will suffer the most from the decisions made by all of the above: the poor Greeks on the street, the elderly who rely solely on government pension checks, and the young students who will not have any hope of a reasonable career path in Greece and must leave the country to support their families